Pang Donglai and Sam's Club: Two Paths to Transformation in China's Retail Industry

Tech 2024-12-14 17:57:03 Source: Network

Pang Donglai and Sam's Club: Two Paths to Transformation in China's Retail IndustryRecently, social media has been abuzz with rumors of "Pang Donglai resellers earning 40,000 yuan per month" and "Pang Donglai resellers making millions," prompting the retailer to take action against these activities. This highlights Pang Donglai's explosive popularity this year

Recently, social media has been abuzz with rumors of "Pang Donglai resellers earning 40,000 yuan per month" and "Pang Donglai resellers making millions," prompting the retailer to take action against these activities. This highlights Pang Donglai's explosive popularity this year. Earlier, Pang Donglai's "revitalization" of a Yong Hui supermarket sparked industry-wide discussion. The revamped Yong Hui saw a significant sales increase, leading many other supermarkets to emulate Pang Donglai's approach, seeking solutions to their own struggles. This reflects the widespread difficulties faced by Chinese supermarkets: declining performance and rising costs. Once lauded "new retail" benchmarks like Hema Fresh and Yong Hui Super Species now show a stark contrast in their performance. In sharp contrast, local brand Pang Donglai and foreign brand Sam's Club have become shining stars in the industry amidst a climate of "consumption downgrade."

Finding Optimism in Pessimism: Opportunities and Challenges in China's Retail Industry

China's retail industry is undergoing a profound transformation. Over the past decade, the rise of e-commerce has significantly impacted traditional brick-and-mortar retail. However, online retail growth has slowed in recent years, with market growth approaching saturation and competition intensifying. Data from the National Bureau of Statistics shows that in the first three quarters of 2024, total retail sales of consumer goods reached 3,535.64 billion yuan, with online retail sales of physical goods reaching 907.21 billion yuan, accounting for 25.7%.

Humans are social creatures; they need social interaction, emotional exchange, and the experience of interactive spaces. Predictably, the future online and offline retail market share will likely maintain a 30/70 or 40/60 split, with offline retail still possessing a solid consumer base and immense potential. The competition between online and offline retail has shifted from traditional channel struggles to a focus on better meeting user needs and improving user experience.

Pang Donglai and Sam

Simultaneously, downward pressure on the macroeconomic environment has had a noticeable impact on the consumer market. Consumer desire has weakened, especially for large-ticket items and non-essential goods, with consumers prioritizing value for money, product quality, and shopping experience. Despite reduced spending willingness, consumers are still willing to pay more for high-quality, personalized goods.

As this year's "hottest players," Pang Donglai and Sam's Club seem to have found the "right way" to adapt to market changes. Pang Donglai has rapidly attracted a large customer base through its unique localized service and consumer experience, while Sam's Club, through its membership model, has precisely targeted the high-value, quality-conscious middle-to-high-end consumer group.

Pang Donglai: Regional Retail Excellence

Recently, there's a sense that Pang Donglai has been overly romanticized. As a regional retail benchmark, Pang Donglai has both advantages and limitations. One core advantage is its meticulous service experience, demonstrating customer appreciation in the details, such as providing disposable raincoats on rainy days, designing special shopping carts and prompts for the elderly, etc. More importantly, Pang Donglai boasts efficient after-sales service and a return policy that quickly addresses customer dissatisfaction, building trust and brand loyalty.

Pang Donglai and Sam

This high-quality service experience requires high employee discipline and a customer-centric philosophy. This is inseparable from Pang Donglai's people-oriented corporate culture. Pang Donglai consistently prioritizes employee welfare, offering above-average salaries and benefits. This not only improves employee job satisfaction but also directly impacts service quality. Furthermore, founder Yu Donglai's "freedom and love" management philosophy encourages employees to work harder for the brand, fostering a unique corporate culture.

It's noteworthy that Pang Donglai has not expanded beyond Henan province, avoiding nationwide expansion. This regional strategy allows it to cultivate the local market, preventing service quality decline and increased management difficulties associated with expansion. Focusing on the local market helps Pang Donglai better understand consumer needs and provide more targeted services.

However, a people-oriented corporate culture and meticulous service require high margins to support them. Pang Donglai's supermarket business has a gross profit margin close to 30%, far exceeding the industry average. This provides greater profit margins, allowing for continued investment in service quality and product innovation, further solidifying its market position.

However, Pang Donglai's success relies heavily on manual labor, especially in its meticulous service. This labor-intensive model is not easily scalable to more regions, particularly in ensuring service consistency. More importantly, Pang Donglai's operating model is relatively high-cost and may not adapt well to the efficiency and low-cost demands of first and second-tier cities. Pang Donglai's service model is mainly suitable for third and fourth-tier cities where consumers place more emphasis on service and quality and the pace of life is relatively slower. However, in first and second-tier cities, consumer shopping behaviors and preferences differ, with the prevalence of online shopping and price-sensitive consumers making Pang Donglai's model difficult to fully replicate. Pang Donglai's significant investment in employee welfare and service quality poses challenges to the sustainability of its profit model. For some low-margin retailers, this high-cost model may be difficult to maintain long-term, especially with increasing market competition.

Pang Donglai and Sam

Sam's Club: A Benchmark for High-End Membership Retail

While traditional large-format supermarkets in China are continuously closing stores, Sam's Club is expanding rapidly, with each new store opening met with overwhelming enthusiasm. Even amidst several reported food safety incidents, its popularity remains undiminished, with domestic sales continuing to grow. According to Walmart's 2024 third-quarter earnings report, Sam's Club in China performed strongly. In the third quarter of 2024, Walmart China's net sales reached $49 billion, a year-on-year increase of 17%. Sam's Club sales have already surpassed their entire sales figures for the previous year. Walmart's overall revenue was $169.59 billion, a 5.5% year-on-year increase.

Sam's Club's membership model is a key differentiator. This not only enhances customer loyalty but also provides Sam's Club with a stable income stream through membership fees. Furthermore, the membership model allows Sam's to better serve its core customer base and improve shopping satisfaction through more targeted product recommendations and promotions.

One of Sam's Club's most significant advantages is its unique product differentiation. As a membership retailer, Sam's focuses on providing high-quality, competitively priced goods, particularly excelling in imported goods. Sams combines a global supply chain with localized operations. Leveraging Walmart's global procurement network, it can conduct large-scale procurement worldwide, ensuring product diversity and supply stability. This global supply chain advantage allows Sam's Club to bring high-quality goods from around the world to the Chinese market, providing consumers with more choices.

Pang Donglai and Sam

Hema Fresh founder Hou Yi once stated: "Sam's Club's success lies in combining American product categories with Chinese internet technology. This gives Sam's both international supply capabilities and benefits from front-warehouse layouts, low-cost Chinese logistics, short videos, and social media dissemination. Especially the front warehouse, it can quickly and comprehensively cover every city and achieve profitability while controlling single-store costs."

Private Brands: The Future Trend in Retail

Which better represents the future of retail: Pang Donglai or Sam's Club? As the two hottest physical retail companies this year, although they have different competitive advantages one focusing on a regional strategy and people-oriented approach, the other leveraging a global supply chain and membership retail they share a commonality: a significant private label presence.

Sam's Club's private brand accounts for approximately 30% of its sales. While precise official data on Pang Donglai's private label share is unavailable, some claim its private label SKUs account for over 20%, though analyst observations suggest a far higher shelf presence, indicating even higher sales volume.

Sam's Club has stated that its Member's Mark private brand encompasses almost all product categories. The name highlights its exclusive nature for members, requiring differentiation in product development, quality control, and pricing. Their private label development follows two principles: defining standards for products lacking clear industry standards and developing private brands when external supply chain margins are deemed excessive, ensuring optimal value for members.

Converging paths: Pang Donglai also effectively controls product quality and costs through self-sourcing, OEM, and refined supply chain management, giving its private label a strong sales position. Compared to traditional brand procurement, Pang Donglai's private label achieves higher gross profit margins and lower operating costs, allowing rapid response to market changes and the launch of products meeting consumer demands. Its success hinges on a deeply optimized and precisely controlled supply chain system.

For retailers, the advantages of private labels are significant; with a well-developed supply chain, it enables better quality, lower prices, and higher (The sentence cuts off in the original text)

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